Apollo Tyres shares extend slide; drops 30% in 2 days

MUMBAI/NEW DELHI: Apollo Tyres Ltd lost a third of its market value or 30 per cent in two days as investors fretted over the debt it will take on to fund its $2.5-billion acquisition of U.S.-based Cooper Tire & Rubber Co .

Apollo Tyres closed 5.6 per cent lower at Rs 64.75, after falling as much as 8.7 percent to Rs 62.60, their lowest since January 2012. The stock fell more than 25 percent on Thursday.

The company said only about $450 million of the total $2.5 billion debt will be serviced by its India business, with the rest shouldered by the cash flows of Cooper, the second biggest U.S. tyre-maker, and its European subsidiary.

"There's hardly any risk," Apollo Managing Director Neeraj Kanwar told reporters in New Delhi. The deal will reduce the firm's dependence on a slowing Indian market.

The fully debt-funded acquisition prodded at least two brokerages to downgrade the stock, while several more have put the company's share rating on review.

"Given the inherent margin volatility in the tyre business and the leverage involved, the transaction clearly involves excessive risk," brokerage Kotak Institutional Equities said in a research note, downgrading the stock to "reduce" from "buy".

Kotak slashed Apollo's stock target price to Rs 64 from Rs 110, citing significant risk to future cash flows and earnings of the company due to the heavy debt burden.

The acquisition of Cooper, at nearly three times the Indian company's market value, will give Apollo access to the top two auto markets, the United States and China, and will create the world's seventh-largest tire maker.